Gold eases on fund liquidation, weak sentiment

By Frank Tang and Jan Harvey

NEW YORK/LONDON (BestGrowthStock) – Gold prices erased initial gains to trade slightly lower on Monday, as technical selling and fund liquidation amid uncertain economic sentiment weighed on the metal.

Earlier in the session, bullion rebounded after it had ended 2 percent lower last week as worries about the nascent economic recovery and currency movements took a toll on investor demand.

Zachary Oxman, managing director of California-based TrendMax Futures, said that gold could face heavy liquidation later this week due to liquidation pressure by funds after the U.S. government proposed to limit banks’ risk taking.

“We were oversold late last week, but there are still a lot of economic worries out there” to send gold prices lower, Oxman said.

Spot gold was at $1,064.85 an ounce at 3:41 p.m. EST versus $1,065.55 late in New York on Friday.

U.S. April gold futures settled up $13.40 at $1,066.20 on the COMEX division of the NYMEX.

Spot bullion had fallen further on Friday after the COMEX settlement, and that explained the opposing directions between the spot and futures markets.

On Friday, bullion had traded as low as $1,043.75, its lowest since November 2, as the euro fell (Read more about the trembling euro. ) on fears over the outlook for some euro zone economies. The single currency’s recovery on Monday supported gold, though analysts are still cautious.

“We are probably not out of the woods yet,” said Saxo Bank senior manager Ole Hansen. “We are not ready to de-couple from the dollar, so we continue to keep an eye on that.”

Dealers said investors were disappointed a Group of Seven ministers and central bank governors meeting this weekend did not result in concrete action to tackle sovereign debt issues in countries such as Greece, Portugal and Spain.

Concern over the outlook for smaller euro zone economies was a major driver of the sharp rise in risk aversion late last week, which saw hefty selling of the euro and assets perceived as higher risk, such as equities and commodities.

ETF HOLDINGS RISE

From a technical perspective, resistance near the $1,050 level held on Friday, preventing a move down toward the 200-day moving average near $1,020 an ounce. A breach of this area would lead to a sharper sell-off, analysts said.

Gold’s price drop prompted some fresh interest in the metal, however, with the world’s biggest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, reporting its first inflow since December on Friday.

“There has been a bit of bargain hunting,” said Credit Agricole analyst Robin Bhar. “We fell to nearly $1,040 on Friday, so that has seen a bit of trade interest and investor positioning emerging, which has given a boost to the market.”

Among other precious metals, silver was at $15.03 an ounce from $15.11 an ounce, platinum at $1,471 from $1,479.50 and palladium at $405 from $402.50.

ETF Securities Ltd has filed with the U.S. Securities and Exchange Commission to start a precious metals basket trust, which will be the company’s fifth U.S. product.

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(Reporting by Frank Tang; Editing by Lisa Shumaker)

Gold eases on fund liquidation, weak sentiment